Nearshoring: How We ́re Doing Month by Month | Monthly Newsletter #8

Update on 2024 Investment Announcements – Ministry of Economy.

The Ministry of Economy reported that from January 1^st to June 30^th, 2024, 143 investment announcements were made, totaling an estimated $45.464 billion dollars. These investments are in addition to the $110.744 billion announced in 2023. The Ministry of Economy noted that this amount is expected to enter the country over the next two to three years and would result in the creation of 50,498 new jobs.

The main countries of origin are: the US, with 48% of the total amount, followed by Germany with 15%, and Argentina with 10%. However, according to the Ministry of Economy, China and France are emerging as major countries that are interested in investing in Mexico, particularly in the automotive and natural gas sectors.

As seen in the past, the main economic sector is manufacturing, as it accounts for 53% of Foreign Direct Investment (FDI) announcements, followed by trade with 15%, transportation with 11%, mass media with 11%, and construction with 5%. In the manufacturing sector, beverages stand out with 43%, automobiles with 16%, and auto parts with 15%.

The main states receiving investments are: Querétaro with 14%, Estado de México with 10%, and Nuevo León with 9%.

The main new public announcements are: Engie, construction of gas pipelines ($2 billion); Walmart, retail trade in self-service stores ($1.862 billion); and Volkswagen, automobile manufacturing ($1.087 billion).

However, it´s worth noting that some of the investments announced this semester do not necessarily correspond to Nearshoring (nor are they Foreign Direct Investment, although the Ministry of Economy considers them as such), such as the investments announced by Femsa and Nemak.

Even though these are FDI announcements that would be carried out in the following years, the country´s gears are gradually starting to move. According to the International Monetary Fund, in 2023 Mexico was positioned as the ninth most significant economy in terms of exports, amounting to $593 billion dollars. Additionally, it ranks fourth as an exporter of medical instruments and tenth in electrical and electronic equipment, both categories having recorded considerable growth in the last year.

According to the United Nations Conference on Trade and Development, Mexico ranked as the ninth economy that received the most FDI flows in 2023 at a global level, and second in Latin America, only behind Brazil. Over the last five years, profit reinvestment increased by 53%, which points to the fact that companies have continued increasing their investments in Mexico. This is also a sign that many companies continue to expand their installed capacity.

Despite this, several challenges remain in place, and to better capitalize on the potential, investments in infrastructure and the Rule of Law are required. Additionally, the possible reconfiguration of the bilateral relationship between Mexico and the US could be an additional challenge, especially as the USMCA will be reviewed in its entirety in 2026.

How Are We Doing in the Trade Balance? – June

In June 2024, Mexico’s trade balance recorded a deficit worth $1.037 billion dollars, compared to a surplus worth $58 million in the same month of 2023. Thus, in the first half of 2024, the trade balance logged a deficit worth $5.498 billion dollars, compared to a deficit worth $6.505 billion in the same period of last year. Consequently, we revised our trade deficit estimate from nearly $10 billion to close to $6 billion for the entirety of 2024, which is equivalent to a deficit worth -0.3% of GDP, similar to last year.

In June 2024, exports logged an annual +5.7% increase, as there was a -4.4% decline of in non-oil exports and a 26.8% increase in oil exports. Regarding non-oil exports, those directed to the US fell by -5.3% year-on-year, while those destined to the rest of the world decreased by -0.1%. Broken down by types of goods, manufactured exports decreased by -4.9%, due to reduced exports of food, beverages, and tobacco (-12.1%), professional and scientific equipment (-8.4%), electrical and electronic equipment (-8.1%), and automotive products (-1.4%). The annual decline in automotive exports was due to a -1.8% drop in sales made to the US and a 0.6% increase in sales made to other markets. Thus, in the first half of 2024, the value of total exports amounted to $299.387 billion dollars, logging 2.6% annual growth. In the first half of 2024, the composition of merchandise exports was as follows: manufactured goods 89.0%, oil products 5.0%, agricultural goods 4.3%, and non-oil extractive products 1.7%.

On the other hand, imports recorded a -3.6% year-on-year figure in June 2024. This was due to a -1.8% decrease in non-oil imports and a -26.3% drop in oil imports. Broken down by types of goods, consumer goods decreased by -4.8% year-on-year due to a +4.7% increase in non-oil consumer goods imports and a -47.8% decline in oil consumer goods (gasoline, and butane & propane gas). Meanwhile, intermediate-use goods decreased by -3.1% compared to the same month of the previous year, due to a -2.3% decline in non-oil imports and a -15.5% drop in oil imports. Capital goods imports reached $4.844 billion, and logged an annual -5.6% decrease compared to June 2023. In the January-June 2024 period, the cumulative value of imports was $304.885 billion dollars (+2.2% vs. the same period of 2023): intermediate-use goods accounted for 75.4%, consumer goods for 14.5%, and capital goods for 10.1%.

Our Main Commercial Port

In analyzing trade balance figures by mode of transportation and customs, we ́ve been able to observe some trends in Mexican foreign trade. The modes of transportation focused on in the study are maritime, air, rail, and road. It ́s noteworthy that maritime and air transport logged deficits, while rail and road transport recorded surpluses.

From January to May 2024, maritime exports increased by +1% compared to the same period of 2023. This was mainly due to a significant increase in exports through the port of Altamira (+19%) and other customs (+17%), which more than offset the decline in exports from Coatzacoalcos, and Cd. del Carmen. Regarding imports, there was a -1% decrease due to declines at Tuxpan, Coatzacoalcos, and other customs. However, some of the more prominent ports, such as Manzanillo (+8%) and Lázaro Cárdenas (+16%), recorded considerable growth.

Concerning air trade, exports decreased by -2% due to the relocation of operations from Mexico City ́s International Airport (-37%) to other customs (+198%). This trend was mirrored in imports, as there was a decrease in those received through Mexico City ́s Airport (-53%) and an increase through other customs (+716%). Additionally, the Monterrey and Guadalajara airports also recorded increases in the value of goods received from abroad; +14% and +3%, respectively.

The rail trade balance has logged a +7% increase in exports and a 2% hike in imports. The most important rail customs are Nuevo Laredo, Tamaulipas, and Piedras Negras, Coahuila. In the first 5 months of 2024, exports amounted to $25.6 million and imports amounted to $12.7 million, accounting for 81.2% of total rail exports and 72% of imports. The overall performance heavily depends on trade that goes through these two cities. However, other major customs in the country continue to grow and capture a larger market share from Nuevo Laredo.

Lastly, road exports, which make up the largest share of Mexican international trade due to the close relationship with the US, increased +5%, with significant growth in Nuevo Laredo (+10%), Nogales, Sonora (+20%), and Colombia, Nuevo León (+6%). Meanwhile, imports increased by +6%, with notable rises in Tijuana, Baja California (+11%) and Cd. Juárez, Chihuahua (+5%).